Netflix Outlook Disappoints, Sentiment Data Ahead

**Collette Eau Claire** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Collette Eau Claire, and here is Schwab's Early Look at the Markets for Friday, July 17th. With earnings slowing a bit ahead of the weekend, investors might have a chance to collect their breath today. Still, geopolitical tension could keep things volatile, and Netflix appeared to disappoint Wall Street with its updated guidance. Major indexes are on track for declines this week, with tech faring the worst. Rotation away from chip names after their meteoric spring rally drove down most of the major indexes over the last few days. But 8 of 11 S&P 500 sectors were up week over week as of late Thursday, which could indicate some resilience below the surface. Magnificent 7 stocks, which limited tech losses Wednesday, generally struggled Thursday, especially Alphabet, after a report that its Gemini AI model faced delays. Apple was also an exception, rising to new all-time highs as UBS forecast iPhone share gains and Microsoft also edged up. Geopolitics remained front and center, pushing Treasury yields back toward recent highs near 4.6% for the benchmark 10-year note. President Trump is considering broader attacks on Iran, media reports said late this week, possibly raising market concerns heading into the weekend. Shorter-term yields, tied more closely to Federal Reserve rate policy, outpaced longer-term ones Thursday, though the two-year note yield at 4.15% is below recent highs. Data-wise, preliminary July University of Michigan consumer sentiment looms later this morning, along with June housing starts and building permits, after a mixed showing for retail sales Thursday. Relatively benign inflation data earlier this week initially supported stocks and eased Treasury yields before Thursday's broad Wall Street retreat. June housing starts and building permits due at 8:30 a.m. Eastern Time are expected to head separate ways, with stats seen improving from May, but permits, a leading economic indicator tracked by the US. Department of Congress, seen dropping month over month. Consumer confidence at 10 a.m. Eastern Time is expected to be 50.7%, up slightly from 49.7% in June, but still near historic lows. Inflation expectations, which fell in June, will likely be watched closely.
The earnings highlight late this week was streaming from Netflix, which fell more than 5% in post-market trading Thursday after quarterly results slightly topped expectations at 80 cents per share. Revenue was $12.56 billion. Analysts had expected earnings per share of 79 cents and revenue of $12.6 billion according to data gathered by Schwab. Netflix forecast appeared to disappoint as the company's projected third quarter earnings and revenue were both below factset consensus. Large banks broadly beat expectations, helping reinforce the idea that corporate fundamentals remain resilient. About 87% of the 40 S&P 500 firms reporting so far have topped consensus earnings per share estimates, CNBC noted. Meanwhile, softer inflation prints helped ease near-term rate hike worries. Odds of a July rate hike were just 10% by late Thursday, according to the CME FedWatch tool, down from 35% a week ago. Chances of a hike by September stood at 53% down from 62% a week ago. June monthly retail sales growth of 0.2% missed the 0.3% consensus, though some elements impressed. Control Group retail sales, which include components that factor into GDP, rose 0.5% in June, the sixth consecutive monthly increase. Consumers took a bit of a step back from restaurants and bars in June, with retail sales for that cohort falling by 0.15% month over month, said Kevin Gordon, Head of Macro Research and Strategy at the Schwab Center for Financial Research, or SCIFR. The Atlanta Fed's GDP Now estimate rose to 1.7% Thursday for second quarter gross domestic product, or GDP growth, from the previous 1.3%.
Initial Weekly Jobless claims yesterday of 208,000 were near the low end of the near-term range and below estimates of 219,000.
Major US indexes dropped Thursday, reversing Wednesday's gains. For the second time in three days, solid earnings and guidance from a dominant chip firm preceded a pullback in the sector, possibly an ominous sign as tech results accelerate. Taiwan Semiconductor Manufacturing announced a 77% annual earnings gain, only to see shares fall more than 3%. The broader market also dipped and Treasury note yields rose as the US continued striking Iran and crude stayed near recent highs. Despite index weakness, 7 of 11 S&P 500 sectors advanced Thursday, though leaders were defensive staples, health care, and real estate. Infotech and Communication Services brought up the rear, each falling more than 2%.
Volume remained below average Thursday, a near constant trend over the last two weeks, while advancing shares outpaced declining ones on the New York Stock Exchange by a moderate amount. Sector leaders lately have been financials and industrials, with energy coming back to life due to the renewed straight tensions.